The macroeconomic policy outlook Q2 2020


This latest report from UK think tank Resolution Foundation with a policy-focused look at the economy.

This is the second Macro Policy Outlook, providing a policy-focused take on the economy. In this edition, we bring together the insights from new research into the impact of coronavirus on the economy with the latest data on its effects, in order to draw out the lessons for policy makers. There are three key takeaways. First, while the Government-imposed lockdown has clearly had an unprecedented effect on economic activity, evidence of concern amongst workers about catching the virus means that even a full relaxation of the lockdown would not lead to a rapid return to business as usual. Second, while much attention has been paid to the effects on the supply and demand sides of the economy, the reality is that both will be affected, and that policy makers need to respond to those shocks in different ways as the crisis unfolds. Moreover, it is not just the size of the hit to demand and supply that is important in informing policy, but also its distribution. In that context, it is worrying that workers in the worst-affected sectors are disproportionately those on lower pay. And third, while there are a number of ways the economic crisis could be amplified, the good news is that, for the most part, those risks do not appear to be crystallising so far. That said, there is already evidence of an unprecedented increase in saving, and the extent to which that continues will be a key factor in determining the strength of the recovery. This means that it is crucial that policy makers remain focussed on the risks.

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